A big idea wrapped in many small, but critical, details

Many labs start out as entrepreneurial ventures to develop new technology. As such, a start-up lab has entrepreneurial requirements that must be met in order for it to successfully develop into a full-fledged business.

Below are some of the entrepreneurial requirements of a start-up lab.

Starting The Lab

Creating the business plan

Starting your lab begins with a business plan that includes, in this order, an executive summary, a company description, a market analysis, an organization and management section, a service or product line section, and a funding request section.

The executive summary is the most important section of a business plan, as it spells out your experience and background as well as the decisions that led you to want to start your business. The executive summary also spells out why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.

The executive summary should highlight the strengths of your overall business plan and demonstrate that you have done thorough market analysis. It should include information about a need or gap in your target market and how your particular technology solutions can fill it. The executive summary should convince the reader that you can succeed in your target market. Although the executive summary appears first in the business plan, it is the last section of the business plan that you write.

The company description section provides a high-level review of the different elements of your business. This is similar to an extended elevator pitch and can help readers and potential investors quickly understand the goal of your business and its unique proposition. The company description section includes a description of the nature of your business and explains the competitive advantages that you believe will make your business a success.

The market analysis section should highlight your industry and market knowledge as well as any of your research findings and conclusions. It should include a description of your industry, including its current size and historic growth rate as well as other trends and characteristics, such as life-cycle stage and projected growth rate. It should also include information about the target market, its distinguishing characteristics, size of the primary target market and your projected share of it, a competitive analysis, and any regulatory or governmental regulatory requirements that will affect your business.

The organization and management section should include your company’s legal and organizational structure, management profile, and the qualifications of your board of directors. The service or product line section includes a description of your product or service, details about your product’s life cycle, status of your intellectual property protection, and current or future R&D activities.

The marketing and sales management section includes your overall marketing and sales strategy—namely your strategies for market penetration, growth, channels of distribution, and communication.

The funding request section of the business plan should include your current funding requirements and any future funding requirements over the next five years, supported by historical and prospective financial information. The funding request section should also include an analysis of the prospective use of the requested funds.

Setting up the business structure

Whether the business structure of your start-up lab is a sole proprietorship, a limited liability company (LLC), a corporation (C or S), or a partnership, it will have long- and short-term legal and tax implications that must be considered. It is advisable to seek legal and tax advice before adopting the final business structure.

Financing the lab

Many entrepreneurs “seed” the start-up lab from their personal resources or the resources of friends and family. This seed funding will pay for lab rent, setting up the lab, employee and consultant salaries, administrative overhead, and other expenses such as insurance, legal, and accounting fees.

Selecting the lab space

There are many available options to establish the physical location of the start-up lab. These include leasing a lab space in a commercial location or in an incubator facility. Traditionally, it is more costly for the start-up lab to lease commercial space with existing lab facilities than it is to establish a lab in an incubator facility.

Many states make available dedicated incubator facilities with wet labs to assist with commercializing critical technologies and to create jobs to strengthen local economies. In the state of New Jersey, the incubation facilities at the Commercialization Center for Innovative Technologies (CCIT) offer life sciences and pharma biotech start-ups plug-in-ready wet and dry laboratory modules with hoods and sinks; office space, including offices and suites; conference rooms; and shared bathroom and eating areas.

There are certain requirements that the start-up lab must meet to avail itself of the CCIT incubation facilities. The start-up lab must make an application to the CCIT Advisory Board, which reviews the business plan and the sources of funding that are available for a period of one year. It is worthy to note that one characteristic of the CCIT is that lab start-ups can stay a maximum of five years; then they “graduate” and move into a commercial lab space. Certain incubators have no term limits.

After securing the lab space, whether it is in an incubator or a commercial facility, the next step is to secure office and lab equipment, whether new or used. New office and lab equipment is available on the open market, and used office and lab equipment may be purchased at large pharma auctions or from online surplus asset sales channels such as GoIndustry DoveBid, which cater to the biotech, life sciences, and pharmaceutical industries.

It is also worthy to note that labs may avail themselves of start-up discounts offered by certain vendors such as Fisher Scientific, Staples, and UPS. In the state of New Jersey, such discounts are available through membership in the Biotechnology Council of New Jersey (BioNJ).

Hiring personnel

An entrepreneur should become aware of employment and labor laws for hiring employees and consultants in order to ensure compliance. These employment and labor laws may include offering employee benefits, writing effective job descriptions, or providing communication tools such as employee handbooks.

Employees and consultants are generally available through the usual channels, or through talent acquisition resources. BioNJ offers resources for talent acquisition such as networking on LinkedIn and talent networking events.

Operating the lab

Once your lab is set up, the next step is operating and managing the lab to ensure continued growth and success. Start-up labs at the operational and management stages have certain entrepreneurial requirements.

Management support

Management support is a broad concept and includes having a team of advisors or service providers available to manage business, finance, accounting, legal, insurance, and human resources functions. In the initial stages, labs might hire outside contractors or consultants to meet these functions, and as they grow, they may hire dedicated staff. Labs located in incubator facilities may have access to shared business management services to support their day-to-day activities.

Another form of management support is networking a resident entrepreneur with colleagues at the other start-up labs leasing space in the incubator.

In many states, experts in business development, product development, customer validation, marketing, corporate structure, strategy, and funding are made available to start-up labs by state organizations. It is worth noting that CCIT offers a new program targeting life science executives in transition to serve as advisors to the tenants of the incubator.

If a start-up lab qualifies as a minority-owned business, the Small Business Administration (SBA) offers a business development program to help qualifying minority-owned firms develop and grow their businesses through one-to-one counseling, training workshops, and management and technical guidance. The program also provides access to government contracting opportunities, allowing these businesses to become solid competitors in the federal marketplace.

Funding

As the lab grows and expands, the entrepreneur must continue to find funding. Incubator facilities run their own programs and provide opportunities for resident entrepreneurs to display their technology to funding sources. Funding sources include one or more angel investors or a venture capital fund. An example of a venture capital fund is Apple Tree Partners, which invests in pharmaceuticals, biotech, medical technologies, and healthcare services.

Government grants provide funding under certain conditions. The SBA offers research grants for small businesses engaged in R&D under the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs. SBIR and STTR programs encourage small businesses to undertake R&D projects that meet federal R&D objectives and have high potential for commercialization.

The SBA also offers loan options to small businesses that meet certain criteria. The SBA loan options include guaranteed loan programs, surety bonds, and equity financing.

Guaranteed loan programs and debt financing are not directly made by the SBA but by its partners (lenders, community development organizations, and micro lending institutions). The SBA guarantees repayment of the loans, thus eliminating some of the risk to the lending partners. SBA-guaranteed loans are not available to a small business if the borrower has access to other financing on reasonable terms.

Surety bonds target small-business contractors that cannot obtain surety bonds through regular commercial channels. The SBA makes an agreement with a surety guaranteeing that the SBA will assume a percentage of loss in the event the contractor breaches the terms of the contract. The SBA’s guarantee gives sureties an incentive to provide bonding for eligible contractors, thereby strengthening a contractor’s ability to obtain bonding and greater access to contracting opportunities for small businesses.

Equity financing is available through the SBA’s Small Business Investment Company (SBIC) program. The SBA does not invest directly in small businesses but relies instead on the expertise of qualified private investment funds. The SBA licenses these funds as SBICs and supplements the capital companies raise from private investors with access to low-cost, government-guaranteed debt.

Growing up

If its entrepreneurial requirements are met, a start-up lab may grow into a full-fledged business. “A start-up lab can remain [totally] virtual or [partially] virtual, or it can set up as a fully diversified company,” says James Sharpe, biotechnology entrepreneur and CEO of several biotech start-ups. “It all depends on the business model a start-up lab chooses to adopt.”

Virtual companies may have only a few key employees and use contract services to accomplish their tasks, while partially virtual companies may have a core management and research team and may contract out their more complex functions such as clinical trials and manufacturing.

“The start-up labs that choose to become fully diversified companies must build substantial expertise in many disciplines in order to succeed, and this takes a significant amount of time and resources, things that are generally in short supply in the start-up world,” says Sharpe. “Hence, the virtual and partially virtual models, which offer an alternative for efficient use of resources while accomplishing key milestones, have gained favor in the past ten years.”